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Heroes are afraid and go anyway
Markets crash because the news is terrible, and an experienced investor reads the same newspapers and watches the same shows as everyone else. The news looks terrible to them too. They overcome it in some way and decide to invest anyway, but they are not immune to what everybody else is reading.
In 1998, Long-Term Capital Management went under, Russia had a ruble crisis, and Southeast Asia was in a panic. A young portfolio manager at Oaktree came to his boss convinced it was all over. The boss asked for his concerns, heard them out, and sent him back to his desk to do his job.
Waiting until there is nothing left to be afraid of probably means the opportunity has passed. A battle hero is someone who is afraid and does it anyway: running into heavy fire without fear would mean something is wrong, and the hero goes because it has to be done.
How did Long-Term Capital Management fail in 1998?
Long-Term Capital Management was a hedge fund that borrowed heavily to bet on small price differences between bonds. After Russia defaulted on its domestic debt in August 1998, investors fled to the safest assets, and the gaps the fund bet on widened sharply. The fund lost billions within weeks. In September 1998, the Federal Reserve Bank of New York brought together 14 banks that put up about $3.6 billion to take the fund over in an orderly way.
Why do losses feel worse than gains?
Psychologists Daniel Kahneman and Amos Tversky described this in their 1979 paper on prospect theory. They found that people weigh a loss more heavily than a gain of the same size. Later estimates put that weight at roughly two times. The effect is called loss aversion.
Why did the 1997 Asian crisis spread so widely?
The crisis began in July 1997, when Thailand let the baht float after running low on reserves to defend it. Investors who had lent heavily to the region pulled money from neighboring economies with similar weaknesses, including Indonesia, South Korea, and Malaysia. Currencies in those countries fell sharply against the dollar. In Indonesia, the rupiah lost more than half its value between mid-1997 and early 1998.
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